Preventing 'Muk-Twi Controversy' Among Executives of Listed Companies... Law to Be Enforced from July Next Year

Amendment to the Capital Markets Act Passed by the National Assembly on the 28th

From July next year, the misconduct of executives of listed companies exercising large-scale stock options or exploiting non-public information for personal gain will be prohibited by law.

The amendment to the "Act on Capital Market and Financial Investment Business," which requires executives and major shareholders of listed companies to disclose large-scale stock transactions in advance, passed the National Assembly plenary session on the 28th.

The purpose is to prevent cases like former Dowoom Group Chairman Kim Ik-rae and Seoul City Gas Chairman Kim Young-min, who made profits by selling shares they held in advance during the SG Securities stock price crash earlier this year. Former Kakao Pay CEO Ryu Young-jun also caused a moral hazard controversy by selling a large amount of stock options immediately after listing. There have been criticisms that such "eat-and-run" behavior by executives of listed companies harms general investors.

Going forward, when executives and major shareholders of listed companies trade stocks issued by the listed company above a certain scale, they must disclose the purpose, price, quantity, and trading period of the transaction before the planned trading date. The advance disclosure period is expected to be set between 30 and 90 days by enforcement decree.

To prevent split trading, whether advance disclosure is required will be determined by aggregating the trading volume and amount over the past six months. Overlapping submission of multiple trading plans with overlapping trading periods will not be allowed.

Violations such as failure to disclose trading plans, false disclosure, or failure to execute trading plans may result in fines of up to 2 billion KRW.

However, reflecting market conditions at the time of the transaction, if necessary, trading may differ from the disclosed plan within 30% of the disclosed transaction amount. Transactions due to unavoidable reasons such as inheritance or stock dividends, as specified by enforcement decree, are exempt from advance disclosure. Withdrawal of trading plans is allowed if unforeseen reasons occur that the reporter could not anticipate in advance, such as death, bankruptcy, or excessive losses expected due to market volatility.

Specific details on advance disclosure targets, exemptions from disclosure obligations, and disclosure deadlines will be finalized through subordinate regulations such as enforcement decrees.

The Financial Services Commission stated, "This amendment will enhance the transparency and predictability of large-scale insider trading, contributing to the prevention of unfair trading and protection of general investors," adding, "Information on insider shareholding changes that significantly affect stock prices will be provided to general investors in a timely manner, minimizing market shocks caused by unexpected large-scale share sales." It is also analyzed that insiders themselves will be able to reduce unnecessary misunderstandings.

The amendment to the Capital Market Act, which passed the National Assembly plenary session this time, is expected to be enforced around July next year after the government's legal promulgation process.

This content was produced with the assistance of AI translation services.